Artificial intelligence is positioned to be among the top investing trends of the next few years. But make no mistake: AI is already here.
The global artificial intelligence market reached $39.9 billion in 2019, according to business consulting firm Grand View Research, a business consulting firm. Artificial intelligence stocks such as Amazon.com (AMZN), Tesla (TSLA) and Nvidia (NVDA) have been market darlings over the past year, lapping the broader market several times over. Exchange-traded funds (ETFs) are getting in on the action too, with most AI ETFs at least doubling the market since this time last year.
And yet somehow, artificial intelligence still has a world of room to stretch its legs ... er, mind.
"From self-driving vehicles to crucial life-saving medical gear, AI is being infused virtually to every apparatus and program," writes Grand View Research, which predicts the global artificial intelligence market will grow at 42.2% annually between 2020 to 2027. "AI is proven to be the significant revolutionary element of the upcoming digital era."
However, if you'd prefer to the avoid the pitfalls of trying to pick individual stocks, a growing list of funds allow you to invest broadly in the rise of this nascent industry. Here are five of the best artificial intelligence ETFs for the job.
Data is as of July 22.
ROBO Global Robotics and Automation Index ETF
- Assets under management: $1.2 billion
- Expenses: 0.95%, or $95 annually for every $10,000 invested
We'll start with the granddaddy of them all, so to speak: the ROBO Global Robotics and Automation Index ETF (ROBO), launched in October 2013.
As the name would suggest, ROBO is not a pure-play artificial intelligence fund, nor are most AI ETFs – something ROBO Global addressed with a more recent AI ETF (more on that in a minute). It targets "global companies that are driving transformative innovations in robotics, automation, and artificial intelligence (RAAI)," so while AI is part of the game, it's just that: part.
It's not a large part, either. "Computing, Processing, & AI" represents the single-largest weighting in ROBO, but at less than a quarter of assets. ROBO does share some holdings with its newer pure-play sister fund, however – "Overlap is just about 15%," says Lisa Chai, Senior Research Analyst at ROBO Global. Those holdings include chipmaker Nvidia, digital workflow specialist ServiceNow (NOW), and Illumina (ILMN), which makes life-sciences tools and genetics-analysis systems.
But this fairly diversified fund also holds health care, logistics automation, 3D printing and consumer-product stocks, among others. It's also well-traveled, so to speak, with less than half its assets in U.S. stocks; another 22% are in Japanese equities, with the rest spread out in countries including Germany, Taiwan and Switzerland.
Again, ROBO isn't a way to invest whole-hog in AI, but it will expose you to other investing trends you might want to be a part of anyway.
Global X Robotics & Artificial Intelligence Thematic ETF
- Assets under management: $1.6 billion
- Expenses: 0.68%
The Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ), launched a few years later (in 2016), is another AI-esque fund that, despite what the name might imply, leans more heavily on robotics and industrial automation.
While Global X doesn't explicitly break out AI as an industry, there are clear artificial intelligence connections such as Nvidia and robot-vacuum maker iRobot (IRBT). But many of the fund's industrial machinery, electronic equipment and electrical component holdings aren't what you'd consider "true" AI plays.
BOTZ is another geographically diversified AI ETF. Roughly 44% of its holdings are in Japan, 34% are in the U.S., 13% are in Switzerland and the rest are sprinkled across seven other countries.
It's a more concentrated fund of just 31 holdings, compared to ROBO's 86. And unlike ROBO's modified equal-weighted portfolio, in which no stock is more than 2% of assets, Global X's ETF is extremely top-heavy. The top 10 holdings comprise 40% of BOTZ's weight, including ABB (ABB), Intuitive Surgical (ISRG) and Nvidia at more than 8% apiece.
Global X's Robotics & Artificial Intelligence is a strong offering from a leader in thematic ETFs, and it has handily beaten the market since inception (albeit in a more volatile fashion). But if you're looking for artificial intelligence ETFs that are truer to the cause, keep reading.
First Trust Nasdaq Artificial Intelligence and Robotics ETF
- Assets under management: $114.7 million
- Expenses: 0.65%
The First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) gives it away in the name: This isn't a pure-play AI ETF, either.
But the pendulum is definitely swinging more toward artificial intelligence in this fund, which is decidedly heavier in information technology companies. Specifically, it's about 61% in tech and another 2% in tech-esque communications stocks, while about 21% of the portfolio is allocated to industrial-sector firms. The remaining assets go to consumer discretionary and health care plays.
ROBT seeks to invest in three types of companies involved in AI, robotics or automation: Enablers (develop the building blocks), Engagers (design, create, integrate or deliver via products, software or systems) and Enhancers (provide services within the ecosystem, but not core to their offerings). The fund scores companies based on its involvement within one of those categories, then makes up the portfolio with 60% of weight in Engagers, 25% for Enablers and 15% for Enhancers.
Top holding CoreLogic (CLGX), for instance, has recently launched an AI-powered homebuying collaboration tool. Sweden's Hexagon AB, which is No. 2 in the portfolio right now, is a sensor and autonomous-solutions specialist that helps to power automated driving.
This 102-stock portfolio is similar to the rest in that it's about half-invested in international stocks, with Japan (15%) and the U.K. (6%) leading the way.
iShares Robotics and Artificial Intelligence Multisector ETF
- Assets under management: $150.2 million
- Expenses: 0.47%
The iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) is built similarly to ROBT: While it's not a pure-play AI ETF, it does provide more exposure to the theme than the first two products we highlighted.
IRBO invests in four types of companies they expect to be involved in what they say "could become the fourth industrial revolution": Robotics Developers, Robotics Enablers, AI Developers and AI Enablers.
Focusing on the latter two, iShares points out a few of examples of what these companies might look like. China internet-services giant Baidu (BIDU), for instance, is an AI Developer that has put together a conversational artificial intelligence system dubbed DuerOS. This technology allows humans to talk with or give commands to their personal devices. It also highlights Splunk (SPLK) as an Enabler, as its software allows customers to analyze big data "for uses including detecting anomalies and predicting outcomes."
The technology sector shines in IRBO at 55% of the portfolio, and communications commands another another quarter of assets. Industrials are a far smaller role here, at just 11% of assets, with the rest in consumer discretionary and health care plays. This AI ETF is geographically diverse, too, with the U.S. at 52% of holdings. Interestingly, China takes the international torch here, at 17% of holdings. Japan's another 11%.
This iShares product also sticks out for its relatively low 0.47% expense ratio.
ROBO Global Artificial Intelligence ETF
- Assets under management: $4.7 million
- Expenses: 0.68%*
We saved the purest for last.
The ROBO Global Artificial Intelligence ETF (THNQ) is a baby-fresh fund that was launched in May 2020. But it's also the purest way available to invest in the future growth of AI technology.
THNQ's portfolio of 70 artificial intelligence stocks is divided into two classifications: Infrastructure, which includes businesses ranging from big data and cloud providers to semiconductors; and Applications & Services, which includes e-commerce and consulting services ... and yes, even factory automation, consumer and health care. But each of these companies has to check off several boxes to be considered genuinely tethered to AI.
"Every company goes through scrubbing. Then we score them — tech leadership, revenue leadership, revenue purity AI investment," says ROBO Global's Chai. "If you score really well in revenue purity but not really AI investment, we don't think you're really serious.
"Having AI in your business is not just about hiring some data scientists to run tools and apps. You need to build an infrastructure."
Chai points to infrastructure software holdings such as Twilio (TWLO) and Atlassian (TEAM) "that are enabling software developers and businesses to build a new generation of intelligent applications," or hardware companies such as ASML Holding (ASML) and Lam Research (LRCX) that are building a "new generation of microprocessors designed to process AI." E-commerce is well represented, too, by companies such as Shopify (SHOP) and Wix.com (WIX) that use artificial intelligence to personalize website experiences.
The wide portfolio of 70 companies is an intentional choice, too. "We think AI is still very early," Chai says, "so having diversified exposure is the best way (to invest in the space)."
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